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Islamic Finance

The Government is demonstrating their continued bid to be the gatweway for Islamic fiance by continuing to iron out remaining uncertainties in the tax treatment of retail and instututional shariah compliant financial products.

In particular the Government is considering changes for alternative property refinance arrangements that do not include payment of interest so they have the equivalent tax treatment to conventional loans. In APR arrangements the owner of the property may, for instance, sell the property to the 'lending' institution, the 'lending' institution will then rent it back to them for a temporary period, after which the original owner will buy it back.

APR arrangements like this could have capital gains tax consequences. For instance, the initial sale might generate a taxable capital gain. The government intends to provide relief from such charges, provided tax changes can be made subject to satisfactory safeguards.

The Government will also issue guidance on the VAT treatment of Islamic bonds (known as ‘sukuk’).

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